UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to _____
Commission
File Number
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
+
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act:
| Title of each class |
| N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
There were shares of the registrant’s common stock, $0.000001 par value per share, outstanding as of November 20, 2023.
TABLE OF CONTENTS
| 2 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates and projections about AERWINS Technologies Inc.’s industry, management beliefs, and assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this Quarterly Report on Form 10-Q are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
| 3 |
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AERWINS TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Notes receivable | ||||||||
| Accounts receivable, net | ||||||||
| Others receivable | ||||||||
| Prepaid expenses | ||||||||
| Inventory | ||||||||
| Escrow deposit | ||||||||
| Total current assets | ||||||||
| Long-term Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Investment-equity method | ||||||||
| Operating lease right-of-use assets | ||||||||
| Long-term loans receivable | ||||||||
| Other non-current assets | ||||||||
| Total long-term assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Short-term loans payable | $ | $ | ||||||
| Short-term loans payable, related party | ||||||||
| Accounts payable | ||||||||
| Accounts payable, related party | ||||||||
| Notes payable | ||||||||
| Others payable | ||||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Current portion of long-term loans | ||||||||
| Finance leases liabilities-current | ||||||||
| Operating leases liabilities-current | ||||||||
| Other current liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Longer-term liabilities | ||||||||
| Long-term loans | ||||||||
| Long-term convertible promissory note, net | ||||||||
| Derivative liability | ||||||||
| Finance leases liabilities-non-current | ||||||||
| Operating leases liabilities-non-current | ||||||||
| Other long-term liabilities | ||||||||
| Warrant liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, par value $, shares authorized; and shares issued and outstanding, respectively in September 30, 2023 and December 31, 2022* | ||||||||
| Preferred stock, par value $, shares authorized; shares issued and outstanding | ||||||||
| Additional Paid-in capital | ||||||||
| Retained earnings (Accumulated deficiency) | ( | ) | ( | ) | ||||
| Treasury stock | ( | ) | ||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
| * |
See Notes to Consolidated Financial Statements (unaudited)
| 4 |
AERWINS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the nine
months September 30, | For
the nine months ended September 30, | For
the three months ended September 30, | For
the three months ended September 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Unaudited | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses (recovery) | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (Loss) on foreign currency transaction | ( | ) | ( | ) | ||||||||||||
| Gain (Loss) on disposal of fixed assets | ( | ) | ||||||||||||||
| Impairment on fixed assets | ( | ) | ( | ) | ||||||||||||
| Equity in earnings of investee | ( | ) | ( | ) | ||||||||||||
| Gain (loss) on sale of investment securities | ( | ) | ||||||||||||||
| Loss on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Gain on fair value adjustments of warrant | ||||||||||||||||
| Gain (loss) on fair value adjustments of derivative | ( | ) | ||||||||||||||
| Derivative expense | ( | ) | ||||||||||||||
| Other income (expenses), net | ( | ) | ||||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income tax provision | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations (Note 25) | ||||||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share from continuing operations | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Anti-Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Income (loss) per common share from discontinued operations | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Anti-Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding* | ||||||||||||||||
| Basic | ||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||
| Convertible debt | ||||||||||||||||
| Conversion of option warrants | ||||||||||||||||
| Diluted | ||||||||||||||||
| * |
See Notes to Consolidated Financial Statements (unaudited)
| 5 |
AERWINS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
| Common Stock | Preferred stock | |||||||||||||||||||||||||||||||||||
| 400,000,000
authorized | 20,000,000
authorized | Additional | Retained | Accumulated | ||||||||||||||||||||||||||||||||
| $0.000001 Par Value | $0.000001
Par Value | Paid-in (Registered) | Earnings (Accumulated | Treasury | Other Comprehensive | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Stock | Income | Totals | ||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Corporate bond conversion | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | - | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Common Stock | Preferred stock | |||||||||||||||||||||||||||||||||||
| 400,000,000 authorized | 20,000,000
authorized | Additional | Retained | Accumulated | ||||||||||||||||||||||||||||||||
$0.000001 Par Value | $0.000001 Par Value | Paid-in (Registered) | Earnings (Accumulated | Treasury | Other Comprehensive | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Stock | Income | Totals | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Issuance of common stock prior to the closing of Business Combination | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Reverse recapitalization | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Issuance of common stock warrants for services | - | |||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balances at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
* Retrospectively restated for effect of the business combination on February 6, 2023.
See Notes to Consolidated Financial Statements (unaudited)
| 6 |
AERWINS TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine Months ended | ||||||||
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided (used) by operating activities: | ||||||||
| Depreciation expenses | ||||||||
| Amortization expenses | ||||||||
| Interest expense | ||||||||
| Non-cash lease expense | ||||||||
| Share-based compensation | ||||||||
| Gain on fair value adjustments of warrant | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Revert of bad debt expenses | ( | ) | ||||||
| Impairment loss | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Gain on sale of investment securities | ( | ) | ||||||
| Loss on debt extinguishment | ||||||||
| Equity in earnings of investee | ( | ) | ||||||
| Derivative expense | ||||||||
| Write-off of inventory | ||||||||
| Decrease (Increase) in operating assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Others Receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Advances and prepayments to suppliers | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other current assets, | ( | ) | ||||||
| Other non current assets | ||||||||
| Increase (Decrease) in operating liabilities: | ||||||||
| Accounts payable | ||||||||
| Notes payable | ||||||||
| Others payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liabilities-current | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities-Non-current | ( | ) | ( | ) | ||||
| Other non-current liabilities | ( | ) | ( | ) | ||||
| Net cash used by continuing operations | ( | ) | ( | ) | ||||
| Net cash used by discontinued operations | ( | ) | ( | ) | ||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Proceeds from disposal of investments | ||||||||
| Repayment of loans receivable | ||||||||
| Net cash provided (used) by continuing operations | ( | ) | ||||||
| Net cash provided (used) by discontinued operations | ( | ) | ( | ) | ||||
| Net cash (used) by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from capital contribution | ||||||||
| Proceeds from bond | ||||||||
| Proceeds from loans | ||||||||
| Repayments to loans | ( | ) | ( | ) | ||||
| Payments for finance leases | ( | ) | ( | ) | ||||
| Proceeds from reverse recapitalization with AERWINS Inc., net | ||||||||
| Net cash provided by continuing operations | ||||||||
| Net cash provided by discontinued operations | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Effects of exchange rates change on cash | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at beginning of period held by discontinued operation | ||||||||
| Cash and cash equivalents at ending of period held by discontinued operation | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid (received) during period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
See Notes to Consolidated Financial Statements (unaudited)
| 7 |
AERWINS TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(unaudited)
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) together with its wholly owned subsidiary AERWINS, Inc., a Delaware corporation and its wholly owned subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) is the developer and manufacturer of air mobility platform, COSMOS (Centralized Operating System for Managing Open Sky), and the XTURISMO Limited Edition Hoverbike. All refences in this report on Form 10-Q to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI.
Pono Capital Corp Merger
On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc., and this business section primarily includes information regarding the AERWINS’, Inc. business.
The Business Combination was accounted for as a reverse recapitalization under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). AERWINS was determined to be the accounting acquirer and Pono was treated as the acquired company for financial reporting purposes. Accordingly, the financial statements of the combined company represent a continuation of the financial statements of AERWINS.
On February 2, 2023, the Company entered into a Subscription Agreement (the “Agreement”) with AERWINS, Inc., and certain investors (collectively referred to herein as the “Purchasers”). Pursuant to the Agreement, the Purchasers agreed to purchase an aggregate shares of common stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for Public Shares upon the consummation of the Business Combination in exchange for an aggregate sum of $ (the “Purchase Price”) with the Purchase Price being paid to AERWINS, Inc. prior to the closing of the Business Combination (the “Closing”). Effective immediately prior to the Closing, AERWINS, Inc. issued the Shares to the Purchasers and thereafter immediately upon the Closing, the Shares were exchanged for the Public Shares, and the Public Shares were issued as a registered issuance of securities under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an effective registration filed by the Company on Form S-4 which was declared effective by the Securities and Exchange Commission on January 13, 2023.
On
February 3, the Company received from the Business Combination with Pono net cash of $
| Cash—Pono trust and working capital cash | $ | |||
| Cash—Subscription agreement made immediately before the closing | ||||
| Less: transaction costs and advisory fees | ||||
| Total funds from the Business Combination | $ |
Regarding
the notes payable of $
| 8 |
NOTE 2 - GOING CONCERN
The
Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of
America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. As of and for the period ended September 30, 2023, the Company has incurred net loss from continuing operations of
$
Although the Company is attempting to commence operations and generate sufficient revenue, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of debt, or a private or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of debt, or a public or private offering. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Unaudited Interim Consolidated Financial Information
The accompanying interim consolidated balance sheet as of September 30, 2023, the interim consolidated statements of operations and comprehensive income (loss), consolidated statements of changes in shareholders’ equity (deficiency), and cash flows for the nine months ended September 30, 2023 and 2022 and the related notes to such interim consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2023 and the Company’s consolidated results of operations and cash flows for the nine months ended September 30, 2023 and 2022. The consolidated results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023.
Use of Estimates
In preparing the consolidated financial statements in conformity with U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for doubtful accounts, useful lives of property and equipment, the impairment of long-lived assets, and valuation allowance of deferred tax assets. Actual results could differ from those estimates.
| 9 |
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and deposits in banks that are unrestricted as to withdrawal or use, and which have original maturities of three months or less.
Accounts Receivable, net
Accounts receivable, net represent the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less an allowance for doubtful receivables. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of operations and comprehensive income. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is remote. In circumstances in which the Company receives payment for accounts receivable that have previously been written off, the Company reverses the allowance and bad debt.
Inventories
Inventories
consist principally of raw materials used for rendering computing sharing services and for manufacturing hoverbikes. Work in progress
represents the costs incurred to date on unfinished products or services. The costs recognized as work in progress include direct materials,
direct labor, and overhead costs that are directly attributable to the production of the unfinished product or service. Inventories are
stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method for merchandise. Net realizable
value is calculated at estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal,
and transportation. Loss from inventories written down to net realizable value should be recognized whenever the utility of goods is
impaired by damage, deterioration, obsolescence, changes in price levels, or other causes. When inventories have been written down below
cost, the reduced amount is to be considered the cost for subsequent accounting purposes. During the nine months ended September 30, 2023, inventory write-downs of $
Fixed assets
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives, as more details follow:
| Depreciation Method | Useful Life | |||
| Building and building accessories | Straight-line method | |||
| Office equipment and furniture | Straight-line method | |||
| Software | Straight-line method | |||
| Design right | Straight-line method | |||
| Patent right | Straight-line method |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive income (loss).
| 10 |
Lease-Lessee
In accordance with the Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) the Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. Lease terms of certain operating leases include the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.
The Company leases office facilities, office equipment and furniture, and a vehicle, which are classified as operating leases and leases containers, which are classified as a finance lease in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, non-current, and finance leases are included in property and equipment, finance lease liabilities, current, and finance lease liabilities, non-current in the consolidated balance sheet.
The operating lease right-of-use asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. All operating lease right-of-use assets are reviewed for impairment annually.
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
The Company has elected the short-term lease exception, and therefore operating lease right-of-use assets and liabilities do not include leases with a lease term of twelve months or less.
Impairment of Long-Lived Assets
Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.
Equity Method
We apply the equity method to an investment in unconsolidated entities over which we have the ability to exercise significant influence. We initially record our investments based on the acquisition cost. Under the equity method, the carrying amount of the investment is adjusted to recognize changes in the Company’s share of net assets of the investment.
| Percentage of Effective Ownership | ||||||||||||
| Name of Subsidiary | Place of Organization | September 30, 2023 | December 31, 2022 | |||||||||
| % | % | |||||||||||
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in Accounting Standards Codification (“ASC”) 815-40 — Derivatives and Hedging — Contracts in Entity’s Own Equity (“ASC 815), under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our consolidated statements of operations. The Placement Warrants, Public Warrants, and Debt Warrants for periods where no observable traded price was available are valued using a Black Scholes model.
Share-based Compensation
We account for the share-based compensation in accordance with the guidance contained in Accounting Standards Codification (“ASC”) 718 — “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
Convertible Promissory Notes and Derivative Instruments
The Company accounts for the fair value of the conversion feature in accordance with the guidance contained in ASC 815, which requires the Company to bifurcate and separately account for the conversion feature as an embedded derivative contained in the Company’s convertible promissory note. Accordingly, we account for the conversion option as an embedded derivative contained in the Company’s promissory note at fair value. The derivative liability is required to be remeasured at each reporting date and the change in fair value is recognized in our consolidated statements of operations.
| 11 |
Foreign Currency Translation
The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the statements of changes in shareholders’ deficit.
Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:
Nine months ended September 30, (unaudited) | Year ended December 31, | |||||||||||
| 2023 | 2022 | 2022 | ||||||||||
| Current JPY: US$1 exchange rate | ||||||||||||
| Average JPY: US$1 exchange rate | ||||||||||||
Consolidated Statements of Cash Flows
In accordance with FASB ASC 830-230, “Statement of Cash Flows”, cash flows from the Company’s operations are calculated based upon the functional currency. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value and net of a value-added tax (“Consumption Tax”). The Consumption Tax on sales is calculated at 10% of gross sales.
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.
| 12 |
Cost of Revenues
Cost of revenues primarily consists of salaries and related expenses (e.g. bonuses, employee benefits, and payroll taxes) for personnel directly involved in the delivery of services and products directly to customers. Cost of revenues also includes royalty/license payments to vendors, hosting and infrastructure costs related to the delivery of the Company’s products and services, and inventory write-down.
Advertising Expenses
Advertising
expenses consist primarily of costs of promotion and marketing for the Company’s image and products, and costs of direct advertising,
and are included in selling expenses. The Company expenses advertising costs as incurred, in accordance with the ASC 720-35, “Advertising
Costs”. The advertising expenses for nine months ended September 30, 2023 and 2022 (unaudited) were $
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For
the nine months ended September 30, 2023, Customer A accounts for
For
the nine months ended September 30, 2022, Customer C and Customer D accounts for respectively
As
of September 30, 2023, Customer A accounts for
For
the nine months ended September 30, 2023, Vendor A and Vendor B accounts for respectively
For
the nine months ended September 30, 2022, Vendor B accounts for respectively
As
of December 31, 2022, Vendor A accounts for
Comprehensive Income or Loss
ASC 220, “Comprehensive Income,” establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive loss, as presented in the accompanying consolidated statements of changes in shareholders’ deficit, consists of changes in unrealized gains and losses on foreign currency translation.
The Company computes basic and diluted earnings (loss) per share in accordance with ASC 260, Earnings per Share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share reflects the potential dilution that could occur if stock options and other commitments to issue common shares were exercised or equity awards vest resulting in the issuance of common shares that could share in the earnings (loss) of the Company.
| 13 |
Related Parties and Transactions
The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, “Related Party Disclosures” and other relevant ASC standards.
Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Income Taxes
Income taxes are accounted for using an asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
The Company follows ASC 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of ASC 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of operations.
Fair Value Measurements
The Company performs fair value measurements in accordance with ASC 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1: quoted prices in active markets for identical assets or liabilities; | |
| ● | Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or | |
| ● | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. |
| 14 |
NOTE 4 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consists of the following:
| September 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ||||||
| Accounts receivable, net | $ | $ | ||||||
Allowance for doubtful accounts movement is as follows:
| September 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Beginning balance | $ | $ | ( | ) | ||||
| Change during the period | ||||||||
| Ending balance | $ | $ | ||||||
Other receivable movement is as follows:
| September 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Change during the period | ( | ) | ||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
The change during the year in 2022 is mainly from increase of consumption tax receivable that has been refunded in 2023.
NOTE 5 — PREPAID EXPENSES
September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Advances to Suppliers | ||||||||
| Total | $ | $ | ||||||
Of the total prepaid expenses as at September 30, 2023, $
NOTE 6 — INVENTORY
Inventory consists of the following:
| September 30, | ||||||||
2023 (unaudited) | December
31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Product | ||||||||
| Stored item | ||||||||
| Write-off of inventory | ( | ) | ||||||
| Total | $ | $ | ||||||
During the nine months ended September 30, 2023, inventory write-downs of $
| 15 |
NOTE 7 — SEGMENT INFORMATION
Management determined the Company’s operations constituted one reportable segment in accordance with ASC 280—Air mobility segment. Revenue by each service line can be found in Note 8 below.
NOTE 8 — REVENUE RECOGNITION
The Company currently generates its revenue from the following main sources:
Revenue from Computing Power Sharing services with Equipment Installation
The Company provides customers with computing power sharing services with equipment installation, which includes a one-time equipment installation and a certain period of time technology service. The Company recognizes revenue from one-time equipment installation at the point in time when the installation is completed and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.
Revenue from Computing Power Sharing services without Equipment Installation
The Company also provides customers with computing power sharing services without equipment installation, which includes a one-time platform set up without equipment installation, and a certain period of time technology service. The Company recognizes revenue from one-time platform set up at the point in time when the platform is set up to function and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly.
Revenue from Air Mobility Drone Solution
The Company provides customers with air mobility drone solution, which includes UAS (Unmanned Aircraft Systems) main equipment, laser scanner, software package, camera system, etc. The solution includes a one-time system set up and a certain period of time technology service. The Company recognizes revenue from one-time system set up at the point in time when the system is set up to function and accepted by the customer. The Company recognizes revenue from technology service over time when the service is rendered and accepted by the customer, normally monthly. Revenue from Air Mobility Drone Solution is included in income from discontinued operations.
Revenue from Project Management
The Company provides customers with project management, which includes project planning and implementation, and providing needed technology human resources, such as construction engineers and software engineers for various projects. The Company recognizes revenue from project management over time when the service is rendered and accepted by the customer, normally monthly. Revenue from Project Management is included in income from discontinued operations.
Revenue from Consulting Service
The Company provided a customer with consulting service related to IPO. The company recognizes revenue from the service over time as the service is rendered.
Disaggregation of Revenue
The Company disaggregates its revenues from contracts by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the nine months and three months ended September 30, 2023 and 2022 is as following (unaudited):
| Nine months ended | ||||||||
September 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Revenue from sales of Computing Equipment | $ | $ | ||||||
| Revenue from Computing Power Sharing services | ||||||||
| Revenue from Project Management for Computing Share | ||||||||
| Consulting service | ||||||||
| Total Revenue | $ | $ | ||||||
| Three months ended | ||||||||
September 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Revenue from Computing Power Sharing services | $ | $ | ||||||
| Total Revenue | $ | $ | ||||||
| 16 |
For the nine months ended September 30 in 2023 and 2022 (unaudited), almost all of the revenue generated are attributed to the Company’s operation in Japan.
Revenue from Air Mobility Drone Solution and Project Management are included in income from discontinued operations.
Contract Liability
As
of September 30, 2023 (unaudited) and December 31, 2022, the Company recognizes contract liability of $
NOTE 9 – LOANS PAYABLE
Notes payable
On January 31, 2023, the Company promised to pay to
Mahana Equity LLC, the principal sum of $
On January 31, 2023, the Company promised to pay to
a third party lender the principal sum of $
As at September 30, 2023, the notes payable balance
was $
Short-term loan payable
During the nine months ended September 30, 2023, the Company received loans
totaling $ (JPY) from third parties. Of these loans, $
NOTE 10 — RELATED PARTY TRANSACTIONS
Guarantee provided by a director of A.L.I.
For
the nine months ended September 30, 2023, the Company received a debt guarantee from the Representative Director of A.L.I. Daisuke Katano
for a particular building lease agreement. The transaction amount is $
Loan from a former director of Aerwins
On
February 27, 2023, the Company’s wholly owned subsidiary in Japan, A.L.I. Technologies, entered into a loan agreement with
Shuhei Komatsu, the Company’s Chief Executive Officer. Pursuant to the Agreement, Mr. Komatsu agreed to lend A.L.I.
The
Company recognizes $
Payable to Directors of Aerwins
In
the third quarter of 2023, two directors of Aerwins, Kiran Sidhu and Daisuke Katano paid some payable on behalf of the Company. Mr. Sidhu
paid $
| 17 |
NOTE 11 — PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
| September 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Building | $ | $ | ||||||
| Accessory equipment | ||||||||
| Structures | ||||||||
| Vehicles | ||||||||
| Tools, furniture and fixtures | ||||||||
| Lease assets | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Impairment | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for nine months ended September 30, 2023 and 2022, were respectively $
NOTE 12 — INTANGIBLE ASSETS, NET
The components of intangible assets as of September 30, 2023 and December 31, 2022 are as follows:
| September 30, | ||||||||
2023 (unaudited) | December 31, 2022 | |||||||
| Software | $ | $ | ||||||
| Design right | ||||||||
| Patent right | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense for nine months ended September 30, 2023 and 2022, were respectively $
NOTE 13 — IMPAIRMENT LOSS
For the nine months ended September 30, 2023, the Company recognized impairment losses for the following assets:
| Type | Impairment loss | |||
| Building | $ | |||
| Accessory equipment | ||||
| Structures | ||||
| Tools, furniture and fixtures | ||||
| Operating Lease right-of-use assets | ||||
| Software | ||||
| Suspense payments | ||||
| Design right | ||||
| Patent right | ||||
| Total | $ | |||
Because the Company continues to recognize operating losses, and the future cash flows from these assets for its business in Japan are uncertain, so it has decided to write down fixed assets in Japan, the Company recognizes impairment loss for all fixed assets in Japan. The Company recognized the reduction as impairment in the line item of impairment on fixed assets. The Company reduces the book value to zero and recognizes the amount as impairment because the future cash flows from these assets were uncertain at the end of this quarter.
NOTE 14 — LEASES
The components of lease costs are as follows:
| For the Nine months Ended | ||||||||
| September 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Short-term lease costs | $ | $ | ||||||
| Finance lease costs | ||||||||
| Operating lease costs | ||||||||
| Total lease costs | $ | $ | ||||||
| 18 |
As of September 30, 2023, the future maturity of lease liabilities is as follows:
| Year ending December 31, | Finance lease | Operating lease | ||||||
| 2023 (nine months) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Non-current lease liabilities | $ | $ | ||||||
The following table presents supplemental information related to the Company’s leases:
| For the Nine months Ended | ||||||||
| September 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Financing cash flows from finance lease | $ | $ | ||||||
| Weighted average remaining lease term (years) | ||||||||
| Finance leases | ||||||||
| Operating leases | ||||||||
| Weighted-average discount rate: (per annum) | ||||||||
| Finance leases | % | % | ||||||
| Operating leases | ||||||||
Pursuant
to the operating lease agreements, the Company made security deposits to the lessors. The amount of security deposits as of September
30, 2023 and as of December 31, 2022 is $
| 19 |
NOTE 15 — LONG-TERM DEBTS
The Company’s long-term loans borrowed from banks and other financial institutions, which consist of the following:
| Name of Lender | Original
Amount Borrowed (JPY) | Loan
Duration | Annual
Interest Rate | Balance
as of (unaudited) | Balance
as of December 31, 2022 | |||||||||||||
| Mizuho Bank, Ltd. | % | $ | $ | |||||||||||||||
| Mizuho Bank, Ltd. | % | |||||||||||||||||
| Mizuho Bank, Ltd. | % | |||||||||||||||||
| Japan Finance Corporation | % | |||||||||||||||||
| Japan Finance Corporation | % | |||||||||||||||||
| Aggregate outstanding principal balances | ||||||||||||||||||
| Less: current portion | ( | ) | ( | ) | ||||||||||||||
| Non-current portion | $ | $ | ||||||||||||||||
Interest
expense for long-term debts was $
NOTE 16 – CONVERTIBLE PROMISSORY NOTES, NET
On
April 12, 2023, the Company entered into a Securities Purchase Agreement (the “SPA”) with Lind Global Fund II LP (the “Investor”).
Pursuant to the SPA, the Company agreed to issue to the Investor up to three secured convertible promissory notes in the aggregate principal
amount of $
On
April 12, 2023, the Company issued first tranche of convertible promissory note of $
On
May 23, 2023, the Company issued second tranche of convertible promissory note of $
The notes consist of the following components as of September 30, 2023:
| Principal | $ | |||
| Debt discount | ( | ) | ||
| Interest expense | ||||
| Net Carrying Balance at September 30, 2023 | $ |
As of the period ended September 30, 2023, debt discount of the convertible notes consisted of following:
| Start Date | End Date | Debt Discount At Debt Issuance | Amortization | Debt
Discount As of September 30, 2023 | ||||||||||
| $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | |||||||||||
| 20 |
NOTE 17 – DERIVATIVE LIABILITY
The
derivative liability is derived from the debt conversion option features in Note 14. They were valued using Monte Carlo simulation model
using assumptions detailed below. As of September 30, 2023, the derivative liability was $
| Volatility | % | |||
| Risk-free rate | % | |||
| Stock price | $ | |||
| Dividend Yield | ||||
| Expected life |
Fair value of the derivative is summarized as below:
| Derivative Liability | ||||
| Balance at January 1, 2023 | $ | |||
| Additions | ||||
| Change in fair value | ( | ) | ||
| Ending Balance, September 30, 2023 | $ | |||
NOTE 18 – WARRANT LIABILITY
The warrant liability is derived from warrants issued as debt warrants in Note 14, public warrants and placement warrants.
As
of September 30, 2023, the total fair value of the warrant liability was $
The following table provides a reconciliation of the warrants measured at fair value using Level 1 inputs:
| Public warrants | ||||
| Balance at January 1, 2023 | $ | |||
| Additions | ||||
| Transfer from Level 2 | ||||
| Change in fair value | ( | ) | ||
| Ending Balance, September 30, 2023 | $ | |||
The Black-Scholes model with the following assumptions inputs:
| Volatility | % | |||
| Risk-free rate | % | |||
| Stock price | ||||
| Expected life |
The following table provides a reconciliation of the warrants measured at fair value using Level 2 inputs:
| Public warrants | Placement warrants | Debt warrants | ||||||||||
| Balance at January 1, 2023 | $ | |||||||||||
| Additions | ||||||||||||
| Transfer to Level 1 | ( | ) | ||||||||||
| Change in fair value | ( | ) | ( | ) | ||||||||
| Ending Balance, September 30, 2023 | $ | |||||||||||
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining contractual life | ||||||||||
| Outstanding at December 31, 2022 | $ | - | ||||||||||
| Granted | ||||||||||||
| Outstanding at September 30, 2023 | $ | |||||||||||
| 21 |
NOTE 19 — INCOME TAXES
United States
Aerwins
Technologies Inc. is a holding company registered in the State of Delaware incorporated in June 2022. The U.S. federal income tax rate
is
Japan
The
Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. During the three months periods ended September
30, 2023 and 2022, all taxable income (loss) of the Company is generated in Japan. Income taxes in Japan applicable to the Company are
imposed by the national, prefectural, and municipal governments, and in the aggregate resulted in an effective statutory rate of approximately
For the nine months ended September 30, 2023 and 2022, the Company’s income tax expenses are as follows:
| For the Nine months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| Total | $ | $ | ||||||
A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations to the Japanese statutory tax rate for the nine months ended September 30, 2023 and 2022 is as follows:
| For the Nine months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Japanese statutory tax rate | % | % | ||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Effective tax rate | ( | )% | ( | )% | ||||
For the Nine months ended September 30, 2023 and 2022 (unaudited)
The Company’s provision for income taxes for interim periods was determined using an estimate of its annual effective tax rate. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period.
The Company recognized income tax expense for the nine months ended September 30, 2023 and 2022, both of which were estimated corporate inhabitant taxes.
| 22 |
NOTE 20 — EQUITY METHOD
As
of September 30, 2022 and 2021, the Company holds
During
the nine months ended September 30, 2023, the Company derecognized investment in ASC Tech agent and derecognized the debt to Shuhei.
Accordingly, the Company recognized loss on sale of investment securities of $
NOTE 21 – SHAREHOLDERS’ DEFICIT
Aerwins was authorized to issue shares of common shares, par value of $ per share, and shares of preferred shares, par value of $ per share.
Business combination with Pono Capital Corp
On February 3, 2023, the Company consummated the Merger with Pono. On February 2, 2023, the Company entered into a Subscription Agreement with the Purchasers. In total, the number of Public Shares increased by at the closing of the Business Combination.
Shares issued to service providers
The
Company agreed with service providers to pay the service fees by issuing common stocks subject to the closing of the business combination.
After the closing of the Business Combination, the Company issued shares of common stock for the three months ended March 31,
2023. The Company issued shares to consultants who provide the Company with several services for the three months ended June
30, 2023. These share issuances are recognized as expense at the fair value of the shares at the issuance date. The Company issued
shares to consultants who provide the Company with several services for the three months ended September 30, 2023. The total amount of
fair value of shares issued for the nine months ended September 30, 2023 was $
The
Company’s outstanding shares increased by for the nine months ended September 30, 2023, and recognized Common stock
of $
Basic earnings (loss) per share is calculated on the basis of weighted-average outstanding common shares. Diluted earnings (loss) per share is computed on the basis of basic weighted-average outstanding common shares adjusted for the dilutive effect of stock options. Dilutive common shares are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options.
| For the Nine months Ended | ||||||||
September 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Loss per share – basic | ||||||||
| Numerator: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operation | ( | ) | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average number of common shares outstanding used in calculating basic loss per share | ||||||||
| Denominator used for loss per share | ||||||||
| Loss per share from continuing operations (basic) | $ | ( | ) | $ | ( | ) | ||
| Loss per share from continuing operations (anti-diluted) | $ | ( | ) | $ | ( | ) | ||
| Loss per share from discontinued operation (basic) | $ | ( | ) | $ | ( | ) | ||
| Loss per share from discontinued operation (anti-diluted) | $ | ( | ) | $ | ( | ) | ||
| For the Three months Ended | ||||||||
September 30, (unaudited) | ||||||||
| 2023 | 2022 | |||||||
| Loss per share – basic | ||||||||
| Numerator: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operation | ( | ) | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average number of common shares outstanding used in calculating basic loss per share | ||||||||
| Denominator used for loss per share | ||||||||
| Loss per share from continuing operations (basic) | $ | ( | ) | $ | ( | ) | ||
| Loss per share from continuing operations (anti-diluted) | $ | ( | ) | $ | ( | ) | ||
| Loss per share from discontinued operation (basic) | $ | ( | ) | $ | ( | ) | ||
| Loss per share from discontinued operation (anti-diluted) | $ | ( | ) | $ | ( | ) | ||
Basic loss per share equals diluted loss per share because the calculation of diluted loss per share would be anti-dilutive.
| 23 |
On July 27, 2022, Aerwins issued stock options to certain directors of the Company which can be exercised for a total of shares of the Company’s common stock with an exercise price of $ per share and a vesting period shall commence on the first business day following the occurrence of going public (the “Trigger Date”), and thereafter (i) one third of the option shall vest on the three months anniversary of the Trigger Date, (ii) one third of the option shall vest on the fifteen month anniversary of the Trigger Date; and (iii) the remaining one third of the option shall vest on the twenty seven month anniversary of the Trigger Date. The remaining weighted average contractual life as of September 30, 2023, is years.
| Grant date | July 27, 2022 | |||
| Number of shares at grant date | ||||
| Outstanding at January 31, 2023 | ||||
| Forfeiture | ( | ) | ||
| Outstanding at September 30, 2023 | ||||
| Exercise price | $ | |||
| Consideration paid to the Company at the grant date | $ |
The number of shares is retrospectively presented to reflect the Business Combination with Pono.
The Company estimated the fair value of the stock-based compensation at $ using the Binomial Option Pricing Model with the following assumption inputs.
| Exercise period | years | |||
| Share price on the issuance date | $ | |||
| Volatility | % | |||
| Expected dividend rate | % | |||
| Risk-free interest rate | % |
NOTE 24 – FAIR VALUE MEASUREMENT
The estimated fair value of the Company’s financial instrument at September 30, 2023 and December 31, 2022 are set forth below. The following summary excludes cash and cash equivalents, accounts receivable, other receivable, short-term loans payable, accounts payable, accrued expenses, contract liability, current portion of long-term debts, current operating and finance lease liabilities and other current liabilities for which fair values approximate their carrying amounts.
Amount at Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| September 30, 2023 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Public Warrants | $ | $ | $ | $ | ||||||||||||
| Placement Warrants | $ | $ | $ | $ | ||||||||||||
| Debt Warrants | $ | $ | $ | $ | ||||||||||||
| Subtotal: Warrant liabilities | $ | $ | $ | |||||||||||||
| Derivative Liability | $ | $ | $ | $ | ||||||||||||
The Public Warrants are classified as Level 1 in the fair value hierarchy because they valued using quoted market prices. The Placement Warrants, Debt Warrants, and Derivative Liability are classified as Level 2 in the fair value hierarchy. This classification is based on the availability of significant inputs used in the Black-Sholes model and Monte Carlo simulation, which are observable in the market.
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from Level 2 to Level 1 during the period from January 1, 2023 due to the increase of observable market activity.
| 24 |
NOTE 25 – DISCONTINUED OPERATIONS
As at September 30, 2023, to facilitate cost reduction plan, the Company has made the strategic decision to discontinue drone solution service. The results of operations in relation to the Company’s Drone solution service have been classified by the Company as discontinued operations for the nine months ended September 30, 2023 and 2022 and are shown below:
For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ( | ) | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expenses, net | ( | ) | ||||||||||||||
| Loss on disposal of fixed assets | ( | ) | ( | ) | ( | ) | ||||||||||
| Impairment of fixed asset | ( | ) | ||||||||||||||
| Other income, net | ||||||||||||||||
| Total other income (expenses) | ( | ) | ||||||||||||||
| Loss before income tax provision | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
NOTE 26 – SUBSEQUENT EVENTS
Management has performed an evaluation of subsequent events through the date of issuance of the unaudited financial statements, noting no items which require adjustment or disclosure other than those set forth in the preceding notes to the unaudited condensed financial statements.
| 25 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “Item 1. Financial Statements and Supplementary Data” of this Quarterly Report on Form 10-Q. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q and “Item 1A. Risk Factors” in our Annual Report on Form 10-K (“Annual Report”) filed with the Securities and Exchange Commission (“Commission”) on March 31, 2023.
Overview
AERWINS Technologies Inc., a Delaware corporation (the “Company,” “we,” “us,” or “AERWINS”) through its subsidiaries is developing the XTURISMO Limited Edition Hoverbike (the “XTURISMO”). Following an evaluation of the viability of other areas of the Company’s business which it considers non-core in light of its limited working capital and desire to further enhance its core business of developing the XTURISMO Ltd. hoverbike, the Company is considering strategic alternatives for the non-core operations of its wholly owned indirect subsidiary, A.L.I. Technologies Inc., a Japanese corporation (“ALI”) including, but not limited to, possible sale or other disposition of these assets. The non-core areas of the Company’s business include the COSMOS unmanned traffic management system, including further development of advancements to this system and the shared computing service business. All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” or “AERWINS” include both AERWINS and ALI, except that references to the “Company” “we,” “us,” or “Pono” in this Item 2 refer to Aerwins Technologies Inc. f/k/a Pono Capital Corp.
We were originally incorporated in Delaware on February 12, 2021 under the name “Pono Capital Corp” as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On August 13, 2021, we consummated an initial public offering. On February 3, 2023, we consummated a merger (the “Merger”) with Pono Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of the Company, then called Pono Capital Corp., a Delaware corporation (“Pono”) with and into AERWINS, Inc. (formerly named AERWINS Technologies Inc.), a Delaware corporation pursuant to an agreement and plan of merger, dated as of September 7, 2022 (as amended on January 19, 2023, the “Merger Agreement”), by and among Pono, Merger Sub, AERWINS, Mehana Equity LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Pono, and Shuhei Komatsu in his capacity as the representative of the stockholders of AERWINS, Inc. (“Seller Representative”). The Merger and other transactions contemplated thereby (collectively, the “Business Combination”) closed on February 3, 2023 when pursuant to the Merger Agreement, Merger Sub merged with and into AERWINS, Inc. with AERWINS, Inc. surviving the Merger as a wholly-owned subsidiary of Pono, and Pono changed its name to “AERWINS Technologies Inc.” and the business of the Company became the business of AERWINS, Inc. The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Pono Capital Corp was treated as the acquired company and AERWINS, Inc. was treated as the acquirer for financial statement reporting purposes.
The Business Combination occurred during the period for which the financial information herein is presented. The financial information included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflects the historical operations of the Company prior to the Business Combination and the combined operations after the Business Combination, unless otherwise noted. For additional information on the Business Combination please see the “Explanatory Note” on page 1 of this Quarterly Report on Form 10-Q. For additional information on the corporate history of our Company please see the section titled “Corporate History” on page 70 of our Annual Report.
Business Overview
We were incorporated in the State of Delaware on June 9, 2022. We conduct business activities principally through our 100%-owned subsidiary, A. L. I. Technologies Inc., a Japanese corporation (“A. L. I. Technologies”), which was established in Japan in September 2016 and was acquired by us in August, 2022.
We are developing our air mobility business with the aim of contributing to society as a global company that leads the air mobility society by continuing to develop the XTURISMO. This hoverbike is a manifestation of the dream of air mobility that endeavors to create an entirely new way to experience the world, enabling users to feel the joy and pleasure of moving freely in space.
| 26 |
To achieve this goal, we have established a United States subsidiary in Los Angeles, California to pursue the redesign of the XTURISMO. These plans are intended to position the XTURISMO more favorably for wider markets, including the United States and Europe and to seek certification of the XTURISMO by the U.S. Federal Aviation Administration (the “FAA”). The redesign is expected to include an alternative powerplant and fuel source, airframe stabilization, use of more efficient rotors with safety features, an upgraded driver seat and enclosure, use of a harness-based wiring system and redesigned onboard electronic systems, among other things.
This initiative will be led by our Executive Chairman and President, Kiran Sidhu. Mr. Sidhu plans to lead a dedicated U.S. based team that will focus on obtaining FAA approval for XTURISMO and managing necessary redesigns. Among the recent steps Mr. Sidhu has taken on this project include discussions with an FAA-certified manufacturer with expertise in helicopter system design and the identification of additional FAA-certified companies that are expected to join the project. We believe that utilizing FAA-certified companies offers an increased level of technical and engineering and financial support that will enable us to implement the enhancements to the XTURISMO and thus expand its potential to enter new markets.
Mr. Sidhu has agreed to provide the Company with up to $300,000 in working capital to launch the initial phase of this redesign initiative by way of an interest-free demand loan. He strongly believes in the potential of XTURISMO and is committed to its success and has agreed to personally provide seed financing to jump start our planned redesign.
Data from the U.S. Bureau of Labor Statistics and Indeed.com reveal that the Los Angeles metropolitan area is home to the highest number of aerospace engineers in the U.S., with over 4,000 aerospace engineers. The region potentially employs over 50,000 professionals in the aerospace and defense sector. Prominent aerospace entities like Jet Propulsion Laboratory in Pasadena, SpaceX in Hawthorne, and NASA Armstrong Flight Research Center in Palmdale are nearby, and major aerospace corporations, including Boeing, Lockheed Martin, and Raytheon, have a local presence.
Discontinued Operations
As of September 30, 2023 we discontinued providing drone photography services and joint research and development services previously provided within our unmanned air mobility business. Current estimated costs and charges to be incurred in connection with discontinuing of this portion of our drone service business are not material.
Following an evaluation of the viability of other areas of the business which we consider non-core in light of its limited working capital and desire to further enhance its core business of developing the XTURISMO hoverbike, we are considering strategic alternatives for the non-core operations including, but not limited to, possible sale or other disposition of these assets. The non-core areas of the business include the COSMOS unmanned traffic management system, including further development of advancements to this system and the shared computing service business. The Company has not been able to make a reasonable estimate of the results these changes will have on its business and financial statements.
| 27 |
Key Factors that Affect Our Results of Operations
Our business is affected by many factors which we discuss under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Commission on March 31, 2023, and in subsequent filings. The following are a few of those key factors that may affect our financial condition and results of operations:
Our Purported Product Superiority.
Both hardware and software technologies are key factors intended to strengthen our competitive advantages. Regarding hardware, we developed air mobility CFRP material for XTURISMO which reduced the weight of the open propeller and its body. CFRP is also easy to process and corresponds to various designs and has strong resistance to dust and salt air. We also developed an original body and steering wheel which enables a driver to drive manually easier. The original hybrid engine has high power generation with low revolution and electric supply support to control the device system. Regarding software, the stability control of XTURISMO assists driving using sensor fusion surrounding the body and links with the cloud in real time through encrypted driving and control data communication. Also, C.O.S.M.O.S., the air traffic control platform connects with each hoverbike and provides flight and network management. These hardware and software solutions are all made in Japan.
Our Ability to Expand International Market
We are seeking to promote global expansion using partnerships, and our ability to succeed in this endeavor will affect our results of operations. Especially in the Gulf Cooperation Council, we have partners for creating the business in the area and will aim to raise funds which we believe will enable us to establish an office and R&D center in the area. We also expect that the area can be a distribution, manufacturing and marketing hub for the vehicles. After that or at the same time, we plan to expand sales channels to other regions, including the United States. Also, in order to facilitate such global expansion, we plan to acquire human resources in various countries outside of Japan.
Our Ability to Control Costs and Expenses and Improve Our Operating Efficiency
We are aiming to establish a highly profitable structure for the mass production of hovercrafts by using a fabless model which focuses on design and supply chain control. We plan to select subcontractors and suppliers appropriately based on cost, quality, and delivery date, and we will seek to build an efficient production system. We also hope to sign a partnership agreement with a local government to implement hovercrafts in society. We aim to reduce the cost of developing advanced technologies and implementing our products in society by utilizing subsidies as part of such support.
A Severe or Prolonged Slowdown in the Global and Japan Economy Could Materially and Adversely Affect Our Business and Our Financial Condition
In recent years, the economic indicators in Japan have shown mixed signs, and future growth of the Japanese economy is subject to many factors beyond our control. The Japanese economy is gradually recovering due to the effects of various government policies which encourage the transition to the post-COVID society. However, it is necessary to note downside risks due to fluctuations in the financial markets, price increases, and supply-chain constraints as global monetary tightening is progressing. Any future deterioration of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our products and their prices.
Results of Operations
Comparison of Results of Operations for the nine Months Ended September 30, 2023, and 2022
The following table summarizes our operating results as reflected in our statements of income during the nine months ended September 30, 2023 and 2022, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the Nine Months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 494,661 | 100.0 | % | $ | 2,140,871 | 100.0 | % | $ | (1,646,210 | ) | (76.9 | )% | |||||||||||
| COST OF REVENUE | 2,078,125 | 420.1 | % | 2,399,459 | 112.1 | % | (321,334 | ) | (13.4 | )% | ||||||||||||||
| GROSS LOSS | (1,583,464 | ) | (320.1 | )% | (258,588 | ) | (12.1 | )% | (1,324,876 | ) | 512.4 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 63,525 | 12.8 | % | 78,952 | 3.7 | % | (15,427 | ) | (19.5 | )% | ||||||||||||||
| General and administrative expenses | 11,867,931 | 2,399.2 | % | 4,304,138 | 201 | % | 7,563,793 | 175.7 | % | |||||||||||||||
| Research and development expenses | 6,748,994 | 1,364.3 | % | 6,389,268 | 298.4 | % | 197,045 | 3.1 | % | |||||||||||||||
| Total operating expenses | 18,680,450 | 3,776.4 | % | 10,772,358 | 503.2 | % | 7,745,411 | 71.9 | % | |||||||||||||||
| Loss from operations | (20,263,914 | ) | (4,063.6 | )% | (11,030,946 | ) | (515.3 | )% | (9,070,287 | ) | 82.2 | % | ||||||||||||
| Other expenses | (1,970,035 | ) | (398.3 | )% | 776,661 | 36.3 | % | (2,746,696 | ) | (353.7 | )% | |||||||||||||
| Loss before income tax provision | (22,233,949 | ) | (4,494.78 | )% | (10,254,285 | ) | (479 | )% | (11,816,983 | ) | 115.2 | % | ||||||||||||
| Income taxes expense | - | - | (19,661 | ) | (0.9 | )% | 19,661 | (100 | )% | |||||||||||||||
| Loss from continuing operations | (22,233,949 | ) | (4,494.78 | )% | (10,273,946 | ) | (479.9 | )% | (11,797,322 | ) | 114.8 | % | ||||||||||||
| Loss from discounted operations | (853,223 | ) | (172.5 | )% | (1,025,120 | ) | (47.9 | )% | 171,897 | (16.8 | )% | |||||||||||||
| Net loss | $ | (23,087,172 | ) | (4,667.2 | )% | $ | (11,299,066 | ) | (527.8 | )% | $ | (11,625,425 | ) | 102.9 | % | |||||||||
| 28 |
Revenue
Our total revenues decreased by $1,646,210 or 76.9% to $494,661 for the nine months ended September 30, 2023 from $2,140,871 for the nine months ended September 30, 2022. The decrease in our revenues was due to a decrease in sales from shared computing business.
Cost of Revenue
Our total costs of revenues decreased by $321,334, or 13.4%, to $2,078,125 for the nine months ended September 30, 2023 from $2,399,459 for the nine months ended September 30, 2022. The decrease in our costs was attributable to the decrease of sales described above and inventory write-down.
Gross Loss
Our total gross loss increased by $1,324,876 or 512.4%, to $1,583,464 for the nine months ended September 30, 2023 from $258,588 for the nine months ended September 30, 2022. $1,487,493 of inventory write-down was included in cost of revenues in the nine months ended September 30, 2023.
Operating Expenses
The following table sets forth the breakdown of our operating expenses for the nine months ended September 30, 2023 and 2022:
| For the nine Months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 494,661 | 100 | % | $ | 2,140,871 | 100.0 | % | $ | (1,646,210 | ) | (76.9 | )% | |||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 63,525 | 12.8 | % | 78,952 | 3.7 | % | (15,427 | ) | (19.5 | )% | ||||||||||||||
| General and administrative expenses | 11,867,931 | 2,399.2 | % | 4,304,138 | 201 | % | 7,563,793 | 175.7 | % | |||||||||||||||
| Research and development expenses | 6,748,994 | 1,364.3 | % | 6,389,268 | 298.4 | % | 197,045 | 3.1 | % | |||||||||||||||
| Total operating expenses | $ | 18,680,450 | 3,776.4 | % | 10,772,358 | 503.2 | % | $ | 7,745,411 | 71.9 | % | |||||||||||||
General and Administrative Expenses
Our general and administrative expenses primarily consist of employee salaries and welfare, consulting for company reorganization and going public, rental expense and travel and entertainment expenses.
| For the Nine Months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| Salaries and welfare | $ | 1,468,500 | 12.4 | % | $ | 1,660,748 | 38.6 | % | $ | (192,248 | ) | (11.6 | )% | |||||||||||
| Consulting and professional service fees | 6,915,884 | 58.3 | % | 1,538,584 | 35.7 | % | 5,377,300 | 349.5 | % | |||||||||||||||
| Depreciation | 232,132 | 2. | % | 11,877 | 0.3 | 220,255 | 1,854.5 | % | ||||||||||||||||
| Share based payment | 1,634,106 | 13.8 | % | - | n/a | 1,634,106 | 100.0 | % | ||||||||||||||||
| Rent expense | 114,447 | 1.0 | % | 109,098 | 2.5 | % | 5,350 | 4.9 | % | |||||||||||||||
| Office, utility and other expenses | 589,499 | 5.0 | % | 319,984 | 7.4 | % | 269,515 | 84.2 | % | |||||||||||||||
| Travel and entertainment expense | 266,363 | 2.2 | % | 284,293 | 6.6 | % | (17,930 | ) | (6.3 | )% | ||||||||||||||
| Commission fees expenses | 382,020 | 3.2 | % | 17,650 | 0.4 | % | 364,370 | 2,064.4 | % | |||||||||||||||
| Other expenses | 264,980 | 2.2 | % | 361,904 | 8.4 | % | (96,924 | ) | (26.8 | )% | ||||||||||||||
| Total general and administrative expenses | $ | 11,867,931 | 100 | % | $ | 4,304,138 | 100 | % | $ | 7,563,793 | 175.7 | % | ||||||||||||
* Refers to the percentage of total general and administrative expenses.
Our general and administrative expenses increased by $7,563,793 or 175.7%, to $11,867,931 for the nine months ended September 30, 2023 from $4,304,138 for the nine months ended September 30, 2022, primarily attributable to Consulting and professional service fees relating to the business combination with Pono.
| 29 |
Research and development expenses
Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
| For the nine months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Research and Development Expenses | Amount | % of | Amount | % of | Amount | % of | ||||||||||||||||||
| Raw materials | $ | 3,942,836 | 58.6 | % | $ | 2,307,090 | 36.1 | % | $ | 1,635,746 | 70.9 | % | ||||||||||||
| Labor expenses | 566,636 | 8.3 | % | 652,281 | 10.2 | % | (85,645 | ) | (13.1 | )% | ||||||||||||||
| Outsourcing expenses | 1,821,375 | 26.9 | % | 2,822,207 | 44.2 | % | (1,000,832 | ) | (35.5 | )% | ||||||||||||||
| Other expenses | 418,147 | 6.2 | % | 607,690 | 9.5 | % | (352,224 | ) | (58 | )% | ||||||||||||||
| Total research and development expenses | $ | 6,748,994 | 100 | % | $ | 6,389,268 | 100 | % | $ | 197,045 | 3.1 | % | ||||||||||||
* Refers to the percentage of total research and development expenses.
Our research and development expenses increased by $197,045, or 3.1%, to $6,748,994 for the nine months ended September 30, 2023 from $6,389,268 for the nine months ended September 30, 2022, primarily attributable to the increase in raw materials cost for development of XTURISMO.
Other Income (Expenses), net
Our other income (expenses) primarily includes impairment loss of fixed assets.
Total other expense, net, decreased by $2,746,696 or 353.7% from $776,661 of income for the nine months ended September 30, 2022 to $1,970,035 of expenses for the nine months ended September 30, 2023.
Net Income (Loss) from Continuing Operations
As a result of the foregoing, we reported a net loss of $22,233,949 for the nine months ended September 30, 2023 representing a $11,797,322 or 114.8% increase from a net loss of $10,273,946 for the nine months ended September 30, 2022. All net loss is attributable to AERWINS Technologies Inc.
Comparison of Results of Operations for the three Months Ended September 30, 2023, and 2022
The following table summarizes our operating results as reflected in our statements of income during the three months ended September 30, 2023 and 2022, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the three Months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 36,908 | 100.0 | % | $ | 206,753 | 100.0 | % | $ | (169,845 | ) | (82.1 | )% | |||||||||||
| COST OF REVENUE | 1,477,845 | 4,004.1 | % | 352,179 | 170.3 | % | 1,125,666 | 319.6 | % | |||||||||||||||
| GROSS LOSS | (1,440,937 | ) | (3,904.1 | )% | (145,426 | ) | (70.3 | )% | (1,295,511 | ) | 890.8 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | - | - | % | 19,426 | 9.4 | % | (19,426 | ) | (100.0 | )% | ||||||||||||||
| General and administrative expenses | 1,759,644 | 4,767.6 | % | 1,582,060 | 765.2 | % | 177,584 | 11.2 | % | |||||||||||||||
| Research and development expenses (recovery) | (46,402 | ) | (125.7 | )% | 1,905,166 | 921.5 | % | (1,951,568 | ) | (102.4 | )% | |||||||||||||
| Total operating expenses | 1,713,242 | 4,641.9 | % | 3,506,652 | 1,696.1 | % | (1,793,310 | ) | (51.1 | )% | ||||||||||||||
| Income (loss) from operations | (3,154,179 | ) | (8,546.0 | )% | (3,652,078 | ) | (1,766.4 | )% | 497,899 | (13.63 | )% | |||||||||||||
| Other expenses | (703,404 | ) | (1,905.8 | )% | (53,792 | ) | (26 | )% | (649,614 | ) | 1,207.7 | % | ||||||||||||
| Income (loss) before income tax provision | (3,857,583 | ) | (10,451.8 | )% | (3,705,870 | ) | (1,792.4 | )% | 151,713 | (4.09 | )% | |||||||||||||
| Income taxes expense (benefit) | - | - | (19,661 | ) | (9.5 | )% | 19,661 | (100.0 | )% | |||||||||||||||
| Loss from continuing operations | (3,857,583 | ) | (10,451.8 | )% | (3,725,531 | ) | (1,801.9 | )% | 132,052 | (3.5 | )% | |||||||||||||
| Loss from discounted operations | (6,724 | ) | (18.2 | )% | (345,601 | ) | (167.2 | )% | 338,877 | (98.1 | )% | |||||||||||||
| Net loss | (3,864,307 | ) | (10,470.1 | )% | (4,071,132 | ) | (1,969.1 | )% | 206,825 | (5.08 | )% | |||||||||||||
| 30 |
Revenue
Our total revenues decreased by $169,845, or 82.1% to $36,908 for the three months ended September 30, 2023 from $206,753 for the three months ended September 30, 2022. The decrease in our revenues was mainly due to a decrease in sales from shared computing business.
Cost of Revenue
Our total costs of revenues increased by $1,125,666, or 319.6%, to $1,477,845 for the three months ended September 30, 2023 from $352,179 the three months ended September 30, 2022. The increase in our costs was attributable to $1,487,493 of inventory write-down included in cost of revenues in the three months ended September 30, 2023.
Gross Loss
Our total gross loss increased by $1,295,511, or 890.8%, to $1,440,937 of loss for the three months ended September 30, 2023 from $145,426 of loss for the three months ended September 30, 2022. $1,487,493 of inventory write-down was included in cost of revenues in the three months ended September 30, 2023.
Operating Expenses
The following table sets forth the breakdown of our operating expenses for the three months ended September 30, 2023 and 2022:
| For the three Months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| REVENUE | $ | 36,908 | 100 | % | $ | 206,753 | 100.0 | % | $ | (169,845 | ) | (82.1 | )% | |||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | - | - | 19,426 | 9.4 | % | (19,426 | ) | (100.0 | )% | |||||||||||||||
| General and administrative expenses | 1,759,644 | 4,767.6 | % | 1,582,060 | 765.2 | % | 177,584 | 11.2 | % | |||||||||||||||
| Research and development expenses (recovery) | (46,402 | ) | (125.7 | )% | 1,905,166 | 921.5 | % | (2,114,249 | ) | (111.0 | )% | |||||||||||||
| Total operating expenses | $ | 1,713,242 | 4,641.9 | % | $ | 3,506,652 | 1,696.1 | % | $ | (1,956,091 | ) | (55.8 | )% | |||||||||||
General and Administrative Expenses
Our general and administrative expenses primarily consist of employee salaries and welfare, consulting for company reorganization and going public, rental expense and travel and entertainment expenses.
| For the three Months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of | Amount | % of | Amount | % of | |||||||||||||||||||
| Salaries and welfare | $ | 234,506 | 13.3 | % | $ | 535,648 | 33.9 | % | $ | (301,142 | ) | (56.2 | )% | |||||||||||
| Consulting and professional service fees | 1,782,593 | 101.3 | % | 557,296 | 35.2 | % | 1,225,297 | 219.9 | % | |||||||||||||||
| Depreciation | 232,132 | 13.2 | % | 11,877 | 0.8 | % | 220,255 | 1,854.5 | % | |||||||||||||||
| Rent expense | 32,854 | 1.9 | % | 36,172 | 2.3 | % | (3,318 | ) | (9.2 | )% | ||||||||||||||
| Office, utility and other expenses (recovery) | (360,915 | ) | (20.5 | )% | 95,582 | 6.0 | % | (456,497 | ) | (477.6 | )% | |||||||||||||
| Travel and entertainment expense (recovery) | (5,200 | ) | (0.3 | )% | 156,065 | 9.9 | % | (161,265 | ) | (103.3 | )% | |||||||||||||
| Commission fees expenses | 89,786 | 5.1 | % | 6,464 | 0.4 | % | 83,322 | 1,289.0 | % | |||||||||||||||
| Other expenses (income) | (246,112 | ) | (14 | )% | 182,956 | 11.6 | % | (429,068 | ) | (234.5 | )% | |||||||||||||
| Total general and administrative expenses | $ | 1,759,644 | 100 | % | $ | 1,582,060 | 100 | % | $ | 177,584 | 11.2 | % | ||||||||||||
* Refers to the percentage of total general and administrative expenses.
Our general and administrative expenses increased by $177,584, or 11.2%, to $1,759,644 for the three months ended September 30, 2023 from $1,582,060 for the three months ended September 30, 2022, primarily attributable to Share-based payment and Consulting and professional service fees relating to the business combination with Pono.
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Research and development expenses
Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
| For the three Months ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Research and Development Expenses | Amount | % of | Amount | % of | Amount | % of | ||||||||||||||||||
| Raw materials | $ | (46,402 | ) | 100 | % | $ | 587,356 | 30.8 | % | $ | (796,439 | ) | (135.6 | )% | ||||||||||
| Labor expenses | - | n/a | % | 154,724 | 8.1 | % | (154,724 | ) | (100 | )% | ||||||||||||||
| Outsourcing expenses | - | n/a | % | 902,482 | 47.4 | % | (902,482 | ) | (100 | )% | ||||||||||||||
| Other expenses | - | n/a | % | 260,604 | 13.7 | % | (260,604 | ) | (100 | )% | ||||||||||||||
| Total research and development expenses | $ | (46,402 | ) | n/a | % | $ | 1,905,166 | 100 | % | $ | (2,114,249 | ) | (111 | )% | ||||||||||
* Refers to the percentage of total research and development expenses.
Our research and development expenses decreased by $2,114,249, or 111%, to recovery of $46,402 for the three months ended September 30, 2023 from $ 1,905,166 for the three months ended September 30, 2022, primarily attributable to the increase in raw materials cost for development of XTURISMO.
Other Income (Expenses), net
Our other income (expenses) primarily includes impairment loss related to fixed assets.
Total other expenses, net, increased by $649,614 or 1,207.7% from $53,790 of expenses for the three months ended September 30, 2022 to $703,404 of expenses for the three months ended September 30, 2023.
Net Income (Loss) from Continuing Operations
As a result of the foregoing, we reported a net loss of $3,857,583 for the three months ended September 30, 2023 representing a $30,627 or 0.8% decrease from a net loss of $3,725,529 for the three months ended September 30, 2022. All net loss is attributable to AERWINS Technologies Inc.
Results from Discontinued Operations
As at September 30, 2023, to facilitate cost reduction plan, the Company discontinued providing drone photography services and joint research and development services previously provided within its unmanned air mobility business. The results of operations in relation to these services have been classified by the Company as discontinued operations for the nine months ended September 30, 2023 and 2022 and are shown below:
For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Revenues | $ | 928,388 | $ | 1,213,695 | $ | 3,183 | $ | 356,392 | ||||||||
| Cost of revenues | 745,007 | 971,657 | 9,045 | 246,095 | ||||||||||||
| Gross profit | 183,381 | 242,039 | (5,862 | ) | 110,298 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | 4,099 | 5,986 | - | 82 | ||||||||||||
| General and administrative expenses | 752,243 | 884,381 | 36,696 | 308,246 | ||||||||||||
| Research and development expenses | 167,053 | 402,296 | - | 172,560 | ||||||||||||
| Total operating expenses | 923,395 | 1,292,663 | 36,696 | 480,888 | ||||||||||||
| Loss from operations | (740,014 | ) | (1,050,624 | ) | (42,558 | ) | (370,590 | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expenses, net | (1,164 | ) | - | - | - | |||||||||||
| Loss on disposal of fixed assets | (9,761 | ) | (2,894 | ) | - | (2,718 | ) | |||||||||
| Impairment of fixed asset | (229,600 | ) | - | - | - | |||||||||||
| Other income, net | 127,316 | 28,398 | 35,834 | 27,707 | ||||||||||||
| Total other income (expenses) | (113,209 | ) | 25,504 | 35,834 | 24,989 | |||||||||||
| Loss before income tax provision | $ | (853,223 | ) | $ | (1,025,120 | ) | $ | (6,724 | ) | $ | (345,601 | ) | ||||
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Liquidity and Capital Resources
As of September 30, 2023, we had $25,174 in cash as compared to $1,278,026 as of December 31, 2022. We also had $180,193 in accounts receivable as of September 30, 2023 as compared to $980,688 as of December 31, 2022. Our accounts receivable primarily include balances due from services provided and accepted by customers. As of September 30, 2023, our working capital deficit was $8,864,096.
In assessing our liquidity, management monitors and analyzes our cash, our ability to raise funds and to generate sufficient revenue in the future, and our operating and capital expenditure commitments. We are looking for other sources, such as raising additional capital by issuing shares of stock, to meet our needs for cash. To that end, management is currently scrutinizing potential cost reductions among the operating expenses and other cost reductions to better align our expenses with revenues which resulted in our discontinuance as of September 30, 2023 of our drone photography services and joint research and development services previously provided within our unmanned air mobility business. Furthermore, we note that we have a history of operating losses, have not yet achieved profitable operations and expect to incur further losses. We have funded our operations primarily from equity and debt financing and shareholder loans. As of September 30, 2023, cash generated from financing activities was not sufficient to fund operations and, in particular, to fund our growth strategy in the short-term or long-term. In connection with our efforts to obtain additional working capital, we sold two Convertible Notes to Lind Global in the aggregate principal amount of $4,200,000 for an aggregate purchase price of $3,500,000 on April 12, 2023 and May 23, 2023, respectively, along with warrants to purchase 3,921,129 shares of our Common Stock and expect to close on the sale of a third Convertible Note in the principal amount of $1,800,000 for a purchase price of $1,500,000 which includes a warrant to purchase 1,680,484 shares of our Common Stock. See “Liquidity and Capital Resources – Recent Financing Transactions” below. The primary need for liquidity is to fund working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of operating as a public company. The ability to fund operations, to make planned capital expenditures, to execute on the development and manufacture of the XTURISMO Limited Edition Hoverbike and to repay or refinance indebtedness depends on our ability to raise funds from debt and/or equity financing which is subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control. There can be no assurance that additional financing will be available to us when needed or at all, or obtained on commercially reasonable terms acceptable to us.
During the quarter ended September 30, 2023, one of the Company’s directors, Kiran Sidhu and a former director, Daisuke Katano, paid some payables on behalf of the Company. Mr. Sidhu paid $425,464 and Mr. Katano paid $203,439. Each of these amounts remain outstanding as of September 30, 2023.
GOING CONCERN
The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of and for the period ended September 30, 2023, the Company has incurred net loss from continuing operations of $22,233,949 and accumulated deficit of $69,560,075. These factors raise substantial doubt on the Company’s ability to continue as a going concern.
Although the Company is attempting to commence operations and generate sufficient revenue, the Company’s cash position is not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of debt, or a private or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of debt, or a public or private offering. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 33 |
Certain Effects of Future Sales of our Common Stock May Have on the Exercise of the Warrants
Sales of a substantial number of shares of our Common Stock in the public market by Lind Global and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of our Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Common Stock. The shares of our common stock issuable upon conversion of the convertible notes held by Lind Global and upon exercise of warrants it holds would represent a substantial percentage of our total outstanding Common Stock as of the date of this report, assuming the sale of all of the Convertible Notes and exercises of all Warrants. Consequently, the sale of all securities that Lind has the right to acquire could result in a significant decline in the public trading price of our Common Stock.
In the event of the exercise of any Warrants for cash, we will receive the proceeds from such exercise. Assuming the exercise in full of all of Warrants for cash, we would receive an aggregate of approximately $2,355,516, but would not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. To the extent any of the Warrants are exercised on a “cashless basis,” we will not receive any proceeds upon such exercise. We intend to use the proceeds received from the exercise of the Warrants, if any, for working capital and general corporate purposes, including personnel costs, capital expenditures and the costs of operating as a public company. The amounts that we actually spend for any specific purpose may vary significantly, and will depend on a number of factors including, but not limited to, market conditions. We believe the likelihood that holders of our Warrants will exercise their Warrants, and therefore the amount of cash proceeds we would receive, is dependent upon the trading price of our Common Stock, the last reported sales price for which was $0.128 per share on November 27, 2023. If the trading price of our Common Stock is less than the Warrant Exercise Prices, respectively, we expect that holders of the Warrants will not exercise them. There is no guarantee the Warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the Warrants may expire worthless and we may receive no proceeds from the exercise of Warrants. We will continue to evaluate the probability of Warrant exercises and the merit of including potential cash proceeds from the exercise of the Warrants in our future liquidity projections, but we do not currently expect to rely on the cash exercise of Warrants to fund our operations. We instead currently expect to rely on the sources of funding described below, if available on reasonable terms or at all.
Recent Financing Transactions
Stock Purchase Agreement. On February 2, 2023, the Company entered into a Subscription Agreement (the “Agreement”) with AERWINS, Inc., and certain investors (collectively referred to herein as the “Purchasers”). Pursuant to the Agreement, the Purchasers agreed to purchase an aggregate 3,196,311 shares of common stock (the “Shares”) of AERWINS, Inc. which was immediately exchanged for 5,000,000 shares of common stock of the Company (the “Company Shares”) upon the consummation of the Business Combination in exchange for an aggregate sum of $5,000,000 (the “Purchase Price”) with the Purchase Price being paid to AERWINS, Inc. prior to the closing of the Business Combination (the “Closing”). Effective immediately prior to the Closing, AERWINS, Inc. issued the Shares to the Purchasers and thereafter immediately upon the Closing, the Shares were exchanged for the Company Shares, and the Company Shares were issued as a registered issuance of securities under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an effective registration filed by the Company on Form S-4 (Registration No. 333-268625) which was declared effective by the Securities and Exchange Commission on January 13, 2023.
Standby Equity Purchase Agreement. On January 23, 2023 (the “Effective Date”), Pono entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd., (“YA”). The Company and its successors will be able to sell up to one hundred million dollars in aggregate gross purchase price of the Company’s shares of common stock, par value $0.000001 per share (the “Common Shares”) at the Company’s request any time during the 36 months following the date of the SEPA’s entrance into force. The shares would be purchased at 96% or 97% (depending on the type of notice) of the Market Price (as defined below) and would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock. “Market Price” shall mean the lowest daily VWAP of the Common Shares during the three consecutive trading days commencing on the advance notice date, other than the daily VWAP on any excluded days. “VWAP” means, for any trading day, the daily volume weighted average price of the Common Shares for such trading day on the principal market during regular trading hours as reported by Bloomberg L.P.
Pursuant to the SEPA, the Company is required to register all shares which YA may acquire. The Company agreed to file with the Securities and Exchange Commission (the “SEC”) a Registration Statement (as defined in the SEPA) registering all of the shares of common stock that are to be offered and sold to YA pursuant to the SEPA. The Company is required to have a Registration Statement declared effective by the SEC before it can raise any funds using the SEPA. The Company may not issue more than 19.99% of its shares issued and outstanding as of the Effective Date without first receiving shareholder approval for such issuances, unless such additional shares may be issued consistent with the rules and regulations of the Nasdaq Stock Market. Pursuant to the SEPA, the use of proceeds from the sale of the shares by the Company to YA shall be used by the Company in the manner as will be set forth in the prospectus included in the Registration Statement (and any post-effective amendment thereto) and any prospectus supplement thereto filed pursuant to the SEPA. There are no other restrictions on future financing transactions. The SEPA does not contain any right of first refusal, participation rights, penalties or liquidated damages. The Company has paid YA Global II SPV, LLC, a subsidiary of YA, a structuring fee in the amount of $15,000, and, on the Effective Date, the Company agreed to issue to YA shares with aggregate value equal to one million dollars, as a commitment fee.
| 34 |
YA has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our common stock during any time prior to the public disclosure of the SEPA. Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of (i) the first day of the month next following the 36-month anniversary of the Effective Date or (ii) the date on which YA shall have made payment of Advances (as defined in the SEPA) pursuant to the SEPA for the Common Shares equal to the Commitment Amount (as defined in the SEPA).
Lind Global Financing. On April 12, 2023, we entered into the Purchase Agreement with Lind Global Fund II LP (“Lind Global”) pursuant to which we agreed to issue to Lind Global up to three Convertible Notes in the aggregate principal amount of $6,000,000 for an aggregate purchase price of $5,000,000 and up to Warrants to purchase 5,601,613 shares of the Company’s Common Stock (the “Transaction”).
The closings of the Transaction (the “Closings and each a “Closing”) will occur in tranches (each a “Tranche”): the Closing of the first Tranche (the “First Closing”) occurred on April 12, 2023 and consisted of the issuance and sale to Lind Global of a Convertible Note with a purchase price of $2,100,000 and a principal amount of $2,520,000 and the issuance to Lind Global of a Warrant to acquire 2,352,678 shares of common stock and the Closing of the second Tranche (the “Second Closing) which occurred on May 23, 2023 and consisted of the issuance and sale to Lind Global of a Convertible Note with a purchase price of $1,400,000 and a principal amount of $1,680,000, and the issuance to Lind Global of a Warrant to acquire 1,568,542 shares of common stock. So long as no Event of Default has occurred under the Convertible Note sold at the First Closing and the Second Closing, the Closing of the third Tranche (the “Third Closing), will consist of the issuance and sale to Lind Global of a Convertible Note with a purchase price of $1,500,000 and a principal amount of $1,800,000, and the issuance to Lind Global of a Warrant to acquire 1,680,484 shares of common stock and will occur upon the effectiveness of the Registration Statement that includes this prospectus. The Third Closing is subject to certain conditions precedent as set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at each Closing, the Company agreed to pay Lind Global a commitment fee in an amount equal to 2.5% of the funding amount being funded by Lind Global at the applicable Closing.
The Convertible Note issued in the First Closing has a maturity date of April 12, 2025, the Convertible Note issued in the Second Closing has a maturity date of May 23, 2025 and the Convertible Note to be issued in the Third Closing will have a maturity date of two years from the date of issuance (the “Maturity Date”). Each Convertible Note has a conversion price equal to the lesser of: (i) US$0.90 (“Fixed Price”); or (ii) 90% of the lowest single volume weighted average price during the 20 Trading Days prior to conversion of each Convertible Note (the “Conversion Price”); provided that in no event shall the conversion price be less than $0.18176 (the “Floor Price”). The Convertible Note will not bear interest other than in the event that if certain payments under the Convertible Note as set forth therein are not timely made, the Convertible Note will bear interest at the rate of 2% per month (prorated for partial months) until paid in full. The Company will have the right to prepay the Convertible Note under the terms set forth therein.
The Warrants were issued or will be issued to Lind Global without payment of any cash consideration. Each Warrant will have an exercise period of 60 months from the date of issuance. The Exercise price of the First Closing Warrant and Second Closing Warrant is $0.8926 per share and $0.7316 per share, respectively, subject to adjustments as set forth in the Warrant. The exercise price for each the Warrant issued at the Third Closing will be an amount equal to 100% of the 10-day VWAP prior to such closing. For further details regarding the Transaction, see “The Lind Global Financing.”
Cash Flows for the Nine Months Ended September 30, 2023 and 2022
The following table sets forth summary of our cash flows for the periods indicated:
| For the Nine Months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Unaudited | ||||||||
| Net cash used in operating activities | $ | (7,746,272 | ) | $ | (11,302,409 | ) | ||
| Net cash provided by (used in) investing activities | (56,943 | ) | 424,504 | |||||
| Net cash provided by financing activities | 5,396,028 | 9,598,714 | ||||||
| Net cash used in discontinued operations | (49,134 | ) | (928,450 | ) | ||||
| Net decrease in cash and cash equivalents | (2,456,321 | ) | (2,207,641 | ) | ||||
| Effect of exchange rate changes | 1,203,469 | (1,434,644 | ) | |||||
| Cash and cash equivalents, beginning of the period | 1,278,026 | 10,020,459 | ||||||
| Cash and cash equivalents, end of the period | $ | 25,174 | $ | 6,378,174 | ||||
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Operating Activities
Net cash used in operating activities was $7,790,283 for the nine months ended September 30, 2023, primarily consisting of the following:
● Net loss of $23,087,172 for the nine months ended September 30, 2023.
● Impairment loss of $1,553,433.
● Write-off of inventory of $1,487,493.
● Decrease in Other receivable of $1,152,107.
● Increase in Accounts payable of $2,783,347.
Net cash used in operating activities was $12,093,061 for the nine months ended September 30, 2022, primarily consisting of the following:
● Net loss of $11,299,066 for the nine months ended September 30, 2022.
● Gain on sale of investment securities of $432,980.
● Increase in Other Receivable of $39,557.
● Decrease in Accounts payable of $106,281.
Investing Activities
Net cash used in investing activities amounted to $60,886 for the nine months ended September 30, 2023, and included purchase of fixed assets of $20,757, purchase of intangible assets of $36,186 and net cash provided used by discontinued operations of $5,123.
Net cash provided by investing activities amounted to $286,706 for the nine months ended September 30, 2022, and included a purchase of fixed assets of $41,416 and Proceeds from disposal of investments of $467,791.
Financing Activities
Net cash provided by financing activities amounted to $5,396,028, for the nine months ended September 30, 2023 and primarily consisted of Proceeds from bond of $2,797,698, Proceeds from loans of $3,706,344 and Proceeds from reverse recapitalization of $1,595,837.
Net cash provided by financing activities amounted to $9,598,714 for the nine months ended September 30, 2022 and primarily consisted of Proceeds from capital contribution of $9,834,301.
Contractual obligations
Lease commitment
The Company’s subsidiary, A. L. I. Technologies entered into 13 leases for its office space, multi-function printers and a vehicle, which were classified as operating leases. A. L. I. Technologies also entered into two leases classified as finance leases.
As of September 30, 2023, future minimum lease payments under the non-cancelable lease agreements are as follows:
| Year ending December 31, | Finance lease | Operating lease | ||||||
| 2023 (nine months) | $ | 68,778 | $ | 120,549 | ||||
| 2024 | 44,488 | 202,050 | ||||||
| 2025 | 9,135 | 138,568 | ||||||
| 2026 | 9,135 | - | ||||||
| Thereafter | 11,419 | - | ||||||
| Total lease payments | 142,955 | 461,167 | ||||||
| Less: imputed interest | (5,135 | ) | (4,434 | ) | ||||
| Total lease liabilities | 137,820 | 456,733 | ||||||
| Less: current portion | 82,203 | 220,602 | ||||||
| Non-current lease liabilities | $ | 55,617 | $ | 236,131 | ||||
| 36 |
Long Term Debt
The Company’s long-term debts included loans borrowed from banks and other financial institutions.
As of September 30, 2023, future minimum loan payments are as follows:
| Year ending December 31, | Loan Payment | |||
| 2023 | 183,029 | |||
| 2024 | 324,315 | |||
| 2025 | 2,049,191 | |||
| 2026 | 311,612 | |||
| Thereafter | 177,739 | |||
| Total | 3,045,886 | |||
| Less interest | 43,187 | |||
| Balance as of September 30, 2023 | $ | 3,002,699 | ||
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2023.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial reporting period. The most significant estimates and assumptions include the valuation of accounts receivable, advances to suppliers, useful lives of property and equipment, the recoverability of long-lived assets, provision necessary for contingent liabilities, and revenue recognition. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application.
We believe critical accounting policies as disclosed in this prospectus reflect the more significant judgments and estimates used in preparation of our consolidated financial statements.
The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial statements:
Use of Estimates
In preparing the consolidated financial statements in conformity U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for doubtful accounts, useful lives of property and equipment, the impairment of long- lived assets, valuation allowance of deferred tax assets, and revenue recognition. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable, net represent the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less an allowance for doubtful receivables. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of operations and comprehensive income. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is remote. In circumstances in which the Company receives payment for accounts receivable that have previously been written off, the Company reverses the allowance and bad debt.
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Lease-Lessee
In accordance with the Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) the Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. Lease terms of certain operating leases include the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain.
The Company leases office facilities, office equipment and furniture, and a vehicle, which are classified as operating leases and leases containers, which are classified as a finance lease in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, non-current, and finance leases are included in property and equipment, finance lease liabilities, current, and finance lease liabilities, non-current in the consolidated balance sheet.
The operating lease right-of-use asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. All operating lease right-of-use assets are reviewed for impairment annually.
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
The Company has elected the short-term lease exception, and therefore operating lease right-of-use assets and liabilities do not include leases with a lease term of twelve months or less.
Foreign Currency Translation
The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive loss within the statements of changes shareholders’ deficit.
Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:
Nine months ended September 30, (unaudited) | Year ended December 31, | |||||||||||
| 2023 | 2022 | 2022 | ||||||||||
| Current JPY: US$1 exchange rate | 149.43 | 144.71 | 131.81 | |||||||||
| Average JPY: US$1 exchange rate | 138.14 | 128.26 | 131.46 | |||||||||
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Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value and net of a value-added tax (“Consumption Tax”). The Consumption Tax on sales is calculated at 10% of gross sales.
When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective at the reasonable assurance level. Management has determined that a material weakness exists due to our late filing of certain reports required to be filed by us with the SEC.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of the ultimate liability, if any, from such claims cannot be determined. As of the date hereof, there are no legal claims currently pending or, to our knowledge, threatened against us or any of our officers or directors in their capacity as such or against any of our properties that, in the opinion of our management, would be likely to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2022.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
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| * | Filed or furnished herewith. |
| + | Management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AERWINS TECHNOLOGIES INC. | ||
| Dated: November 28, 2023 | By: | /s/ Taiji Ito |
| Name: | Taiji Ito | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| Dated: November 28, 2023 | By: | /s/ Yinshun (Sue) He |
| Name: | Yinshun (Sue) He | |
| Title: | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
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